Chamber hosts lunch, lesson on labels

As the penalties for misclassifying an employee become more stringent, it’s important that your business takes the time to correctly classify each worker, according to speakers at a recent luncheon meeting.

Many employers mistakenly classify workers as independent contractors because the worker signed an independent contractor agreement and wanted to be classified as such.

“Neither of those really means anything,” Schneider told a group of about 18 business owners at the luncheon. The pair said all employers should begin with the assumption that the worker is an employee.

Generally, with an employee, an employer has more control over the worker; the worker is doing work necessary to the business, and is being paid by the time instead of by the job. Workers that receive annual leave and work full-time are generally classified as employees.

To be considered a true independent contractor, however, the worker typically needs to be working for other businesses and is using his or her own equipment and office.

None of these elements is more important than others, said Lee. The Internal Revenue Service looks at many factors to determine whether a worker was correctly classified as an independent contractor.

And recently, the IRS has begun more proactively auditing more businesses to make sure they are correctly classifying workers, the pair said. If you’re found misclassifying workers, “you are dead meat,” Schneider said. As of this year, new penalties range from $5,000 to $25,000 for willful misclassification, on top of any back wages you’ll owe the employee for missed overtime and breaks.

The IRS has implemented a new voluntary worker classification program, where an employer can pay a minimal payment of past payroll taxes if he has accidentally been misclassifying workers.

“They’re interested in getting people to pay payroll tax,” Schneider said, “not putting them out of business.” The pair also touched on the topic of interns, which is particularly relevant in the summer when young adults and students are requesting to work as interns for free to gain experience.

Interns have to be paid minimum wage or be working for college credit, Lee said. It is not legal to allow them to work regular hours and regular tasks as voluntary interns, even if they were willing.